Thursday, June 07, 2007

America Should Welcome China's Rise

From the current July/August issue of The Atlantic, an excellent article "China Makes, The World Takes: A Look Inside the World's Manufacturing Center Shows that America Should Welcome China's Rise" (subscription required for the article, the slide show here should be available free), here are some excerpts:

"Most of what has been good about China over the past generation has come directly or indirectly from its factories. The country has public money with which to build roads, houses, and schools—especially roads. The vast population in the countryside has what their forebears acutely lacked, and peasants elsewhere today still do: a chance at paying jobs, which means a chance to escape rural poverty.

Americans complain about cheap junk pouring out of Chinese mills, but they rely on China for a lot that is not junk, and whose cheap price is important to American industrial and domestic life. Modern consumer culture rests on the assumption that the nicest, most advanced goods—computers, audio systems, wall-sized TVs—will get cheaper year by year. Moore’s Law, which in one version says that the price of computing power will be cut in half every 18 months or so, is part of the reason, but China’s factories are a big part too.

At the electronics and household-goods factories, the pay is between 900 and 1,200 RMB per month, or about $115 to $155. In the villages the workers left, a farm family’s cash earnings might be a few thousand RMB per year.

A factory work shift is typically 12 hours, usually with two breaks for meals (subsidized or free), six or seven days per week. Chinese law says that the standard workweek is 40 hours, so this means a lot of overtime, which is included in the pay rates above. Since their home village may be several days’ travel by train and bus, workers from the hinterland usually go back only once a year. They all go at the same time—during the “Spring Festival,” or Chinese New Year, when ports and factories effectively close for a week or so and the nation’s transport system is choked.

“The people here work hard,” an American manager in a U.S.-owned plant told me. “They’re young. They’re quick. There’s none of this ‘I have to go pick up the kids’ nonsense you get in the States.”

In case the point isn’t clear: Chinese workers making $1,000 a year have been helping American designers, marketers, engineers, and retailers making $1,000 a week (and up) earn even more. Plus, they have helped shareholders of U.S.-based companies."

Global Sales Increases for Wal-Mart Help the U.S.

From today's WSJ, "Retailers reported modest sales increases for May, rebounding from a dismal April but confirming a broad consumer slowdown that's now stoking worries about the crucial fall and holiday seasons.

Wal-Mart reported a 1.1% same-store sales gain, at the lower end of its 1% to 2% forecast (see chart above). While results were better than expected at the company's Sam's Clubs, same-store sales at its namesake chain rose just 0.3% amid persistent weakness in apparel and home-related items."

From the report "Globalization and Employment by U.S. Multinationals: A Framework and Facts," by Matthew Slaughter, economist at Dartmouth:

"Wal-Mart supports its international operations at its headquarters in Bentonville, Arkansas, where it employs over 15,000 people. Roughly 1,500 associates in its information systems division are responsible for coordinating the worldwide distribution systems that move Wal-Mart’s products to ten countries around the globe. Before Wal-Mart began to expand overseas in the mid-1990s, most of these 1,500 jobs did not exist."

Bottom Line: Despite somewhat weak same-store sales for Wal-Mart, notice that Net Sales for all Wal-Mart Stores increased by 5.5% in May (see chart above), and note also that international sales for Wal-Mart increased 14.2% in May and 16.4% over the last 17 weeks.

This points another way that globalization helps the American economy - even if U.S. sales are slow, companies like Wal-Mart might be experiencing strong sales overseas, which helps support and expand the 15000 Wal-Mart jobs in Arkansas coordinating an expanding worldwide distribution system to support double-digit sales increases OUTSIDE the U.S.

Globalization Lifts 300m Indians Out of Poverty

From The Economist magazine's article "Luxury goods in India: Maharajahs in the shopping mall:"

"India has fewer than 100,000 millionaires (measured in USD) among its one billion-plus population, according to American Express, a financial-services firm. It predicts that this number will grow by 12.8% a year for the next three years. The longer-term ascendance of India's middle class, meanwhile, has been charted by the McKinsey Global Institute, which predicts that average incomes will have tripled by 2025, lifting nearly 300m Indians out of poverty and causing the middle class to grow more than tenfold, to 583m."

MP: When free markets, international trade and globalization lift hundreds of millions of people out of poverty, do we really need the World Bank and IMF?

Here's a link to the McKinsey report "The 'Bird of Gold': The Rise of India's Consumer Market" (free subscription required).

"If India continues on its current high growth path, incomes will almost triple over the next two decades, and the country will climb from its position as the twelfth-largest consumer market today to become the world's fifth-largest consumer market by 2025 (equal to Germany)."

Wednesday, June 06, 2007

Fair Pay Act of 2007: "Unconscionably Ridiculous"

Greg Mankiw discusses "A Comeback for Comparable Worth" on his blogs and cites this Fortune Magazine article "Obama flunks Econ 101: As co-sponsor of a bill that would bureaucratize most of the labor market, the presidential hopeful is flirting with a very bad idea."

The issue here is the Fair Pay Act of 2007, introduced by Tom Harkin (D-Iowa) in April (Illinois Sen Barack Obama is one of 15 co-sponsors), and which intends to correct the wage differentials between men and women. From the Fortune article:

"To the Fair Pay Act's backers, the simple fact that women make 81% of men's full-time earnings is in and of itself proof of discrimination, past and present. Only a pig-headed sexist would argue otherwise."

Well, of course it's not that simple. Fortune cites this BLS report from September 2006, which does show on Table 1 that for the general population, and unadjusted for any important variables that contribute to differences in earnings, women's median weekly earnings ($585) are 81% of men's earnings ($722). But here are a few interesting details from the BLS report:

1. Controlling for just marital status, and looking only at those workers who have "never married," women earn 96.7% of what men earn. Not much of a pay gap there.

2. Controlling for age, and looking at the age group 25-34, women earn 89.1% of what men earn. For older age groups, the pay gap widens. For example, women in the 35-44 age group make only 75.6% of men, as might be expected due to motherhood and child raising.

3. Looking at "median hourly earnings" on Table 9, female workers with a bachelor's degree or higher make 99.6% of what men earn with the same education. No pay gap there.

4. Looking at union workers in Table 9, female union members make only 78% of male workers, compared to female workers not represented by a union, who make 88.2% of male wages! What about "workers' rights" for union women? Help us out Walt G!

The Fortune article concludes: "The Fair Pay Act is, in short, madness. And it is troubling that Obama has associated himself with this kind of legislation - a position that has the feel of a pander to the feminist left. It is certainly not sound economics."

Quote of the Day: Walter Williams on "Rights"

"We hear a lot of talk about this or that human right, such as a right to health care, food or housing. That's a perverse usage of the term "right." A right, such as a right to free speech, imposes no obligation on another, except that of non-interference. The so-called right to health care, food or housing, whether a person can afford it or not, is something entirely different; it does impose an obligation on another. If one person has a right to something he didn't produce, simultaneously and of necessity it means that some other person does not have the right to something he did produce.

That's because, since there's no Santa Claus or Tooth Fairy, in order for government to give one American a dollar, it must, through intimidation, threats and coercion, confiscate that dollar from some other American. I'd like to hear the moral argument for taking what belongs to one person to give to another person.

There are people in need of help. Charity is one of the nobler human motivations. The act of reaching into one's own pockets to help a fellow man in need is praiseworthy and laudable. Reaching into someone else's pocket is despicable and worthy of condemnation."

~George Mason economist Walter Williams, in his column "Compassion Versus Reality"

Tuesday, June 05, 2007

What the World Eats, Pretty Cool

What's on family dinner tables in fifteen different homes around the globe? Photographs by Peter Menzel from the book "Hungry Planet," see the slide show here. I think I'll skip the pig's knuckles though, with the Sobczynscy family in Poland, I'd rather hang with the Ayme's (pictured above) in Peru and have potato soup.

Quote of the Day: An MD Who Understands Econ

From today's WSJ, "Our Soviet Health System" by Dr. Robert Swerlick, Emory University School of Medicine:

Those who control public policy treat pricing as something trivial -- the concern of bourgeois shop keepers peddling trinkets. Yet the dilemma of administrative pricing causes problems for the allocation of resources today that would only be amplified if the U.S. moves toward even more government intervention in health care than already exists.

Where do prices come from, how do we know when they are right? If the prices set are mistaken -- result in a mismatch of supply and demand -- how are they to be corrected if pricing decisions are made in a political (bureaucratic) arena, and by the market (supply and demand)? These questions cannot be wished away.

One important lesson of the 20th century is that, while markets are far from perfect, more choices are available when people are able to use free markets to interact with each other. Markets may not get the prices exactly correct all the time, but they are capable of self-correction, a capacity that has yet to be demonstrated by administrative pricing.

It tells you something when the supply of and demand for specialist veterinary care is so easily matched when the prices of these services are established on the market -- while shortages and oversupplies are common for human medical care when the prices of these services are set by administrators in the public sector. Will health-care reformers -- and American citizens -- get the message?

Graphs of the Day

Source: Postsecondary Education Opportunity.

It's interesting that from the 1940s through the early 1950s there was less than a 5% gap between white and black college graduates, before the Civil Rights Act and before affirmative action programs, compared to a gap of more than 15% over the last ten years.

Merit-Based Natural Diversity vs. Social Engineering

In response to Columbia President Lee Bolinger's (formerly president of the University of Michigan) article in the Chronicle for Higher Education (subscription required) "Why Diversity Matters," Dinesh D'Souza writes "Why Diversity Doesn't Matter:"

Consider two scenarios for UC-Berkeley or UCLA. In the first, the campus is 45% Asian, 48% white, 4% Hispanic and 3% black. In the second, the campus is 30% Asian, 55% white, 7% hispanic, and 8% black. Does the second scenario strike you as markedly more diverse than the first?

Actually it isn't. The fraction of minorities is roughly the same. The difference is that the first scenario is produced by merit. It represents merit-based diversity. It is a pretty good picture of what Berkeley and UCLA look like now. The second scenario is produced by racial preferences. It represents socially-engineered diversity. It is how Berkeley and UCLA used to look in the era of racial preferences.

The advantage of natural diversity is that it achieves its goal without sacrificing merit. The disadvantage of socially-engineered diversity is twofold: First, it is unfair to qualified students who are denied admission. If you want to raise the proportion of under-represented groups, you have to lower the proportion of over-represented groups. But who are these over-represented groups? Basically they are Jews and Asian Americans. And they are over-represented not because they are discriminating against anybody but because they are out-performing everybody. So why should they suffer?

The second disadvantage of ethnic and racial preferences is that they often hurt the students they seek to help. How? By putting them into competition with students against whom they are mismatched. A Hispanic student who can do the work and compete effectively at San Francisco State University is admitted to Berkeley, where he is completely overwhelmed by the work and ends up at the bottom of the class, or worse, dropping out. California’s public universities had scandalous black and Hispanic dropout rates in the era of affirmative action.

The bottom line is that Bollinger is wrong. Yes, diversity is good for higher education, but the issue raised by affirmative action is not one of "diversity" versus "no diversity." It is a matter of the natural diversity produced by talent and hard work, versus Bollinger's type of socially engineered diversity. The National Football League doesn't look like America, the U.S. Congress doesn't look like America, Hollywood doesn't look like America, so why is it so important that UCLA or Columbia look like America? In this country what matters is not how you look but what you can do.

Food Price Inflation = Gasoline Price Inflation

From the 25 year period from 1982 through January of 2007, the CPI for food increased at an annual rate of 2.89%, and the CPI for unleaded gasoline increased at almost exactly the same rate of 2.88% (see graph above, click to enlarge). However, the variability of gas prices over this period was almost 13 times higher than food prices, measured by the standard deviations of gasoline inflation and food inflation, 51% vs. 4% respectively. (And to be fair, if you add in the last several months of gasoline price increases, the 25-year average inflation rate for gas is slightly higher than for food.)

This difference in inflation varability probably explains why you'll find twice as many Google search hits for the term "rising gas prices" comared to "rising food prices." Even though food prices rise historically at almost the exact same rate as gasoline prices, it's the variability of gasoline prices that makes the average person unsettled and upset about gasoline prices and relatively unconcerned about rising food prices.

Bottom Line: Even though gas and oil prices are volatile and change daily, that's not a sign of any market failure, it's actually the opposite: daily proof that the magic of the market is working perfectly and efficiently to continually "clear the market" and prevent shortages and surpluses.

And it's the variability of gas prices that probably explains why there is legislation for "price gouging," "unconscionably excessive prices," and "winfall profits" for gasoline and oil, but NOT for food.

Monday, June 04, 2007

Mutually Inconsistent Answers

Think about how a majority of the general public would answers these 9 questions, let me predict their answers as follows:

Group A:

1. Is global warming a problem and do automoblies contribute significantly to it? YES

2. Is increased energy efficiency desirable? YES

3. Are alternative fuels like wind and solar desirable? YES

4. Should we encourage hybrid cars? YES

5. Should we try to reduce energy consumption as much as possible? YES

6. Should we try to promote increased energy conservation? YES

Group B:

7. Are higher gas prices, like $5 per gallon, a good thing? NO

8. Would you like to see lower gas prices this year, like $2 per gallon? YES

9. Should we legislate against "price gouging" by oil companies? YES

Bottom Line: The general public's predicted answers to Questions 7 - 9 are in direct opposition to their answers to Questions 1 - 6. That is, based on the predicted answers to Group A questions, people should advocate HIGHER prices for gas and NOT LOWER prices!

Higher gas prices, e.g. $5 per gallon, would lead to MORE energy conservation, LESS pollution, and INCREASED use of alternative fuels, whereas lower gas prices, e.g. $2 per gallon, would lead to LESS energy conservation, MORE pollution, and a DECREASED use of alternative fuels.

Quote of the Day

"An avowed Marxist, Venezuelan President Hugo Chávez is in the process of destroying his country. Of this there is no doubt. But he is also an international menace, and a rich one at that. He has been using his oil wealth to sow revolution, à la Fidel Castro, in South and Central America. Did we mention that he's a dear friend of the Iranian government?"

~Mary Anastasia O'Grady in today's WSJ editorial "
The Young and the Restless"

Traffic Rankings for Business and Economics Blogs

The chart above (click to enlarge) is from's monthly Traffic Rankings for Major Business and Economics Websites, see the top 10 blogs above and Carpe Diem (#43) from June 1.

Cartoon of the Day

Sunday, June 03, 2007

If You Think Gas Prices Are High, What About Food?

From John Stossell on ABC 20/20: "One reason that people are upset by gas prices is that the price is in your face every time you drive by the gas station. But it may surprise them that this year the price of lettuce, broccoli and apples increased much more than the price of gas. You probably don't know that because they don't post big signs like gas stations do."

Stossell is correct, see the annual price changes (April 2006 to April 2007) in the chart above according to the BLS: lettuce increased by 13.5%, broccoli increased by 12.7% and apples increased by 15%, which are far above the 3.7% increase in unleaded gas during the same period.

New food prices are not yet available from the BLS for May, but updating retail gas prices from the EIA shows that the year-to-year May 2007 increase in gas prices was about 8.0%, which is still lower than inflation for the 3 items mentioned by Stossell on 20/20.

Here's a related AP article that starts out "Rising gasoline prices have been getting all the attention, but the cost of another, more-important staple is actually rising even more: food."

What's next, claims of "unconscionably excessive" celery prices, "price gouging" for oranges, and taxes on the "windfall profits" of egg producers and lettuce farmers?

Quote of the Day

"Bob Dole once told me that there are 42 senators from farm states and that pretty much means the government is going to be into ethanol."

~T. Boone Pickens in the WSJ

Saturday, June 02, 2007

Interesting Facts of the Day: Largest Cities

From About.Com: Geography, which also has a very interesting list of the most populous cities througout history.

Butler Shortage: Starting Pay $70,000

From the WSJ, an interesting article "The Butler Boom: Wealth Explosion Sparks Labor Shortage" and related Wealth Report blog posting on butlering, one of the fastest-growing occupations in the United States after more than a half-century of decline, driven by the greatest surge in American wealth in nearly a century.

"Aside from learning the traditional butler skills (ironing a pair of French cuffs in seconds flat, storing a sable coat, washing a Bentley), today’s butlers have a learn a whole series of new duties. The new rich are building mansions so big, complex and expensive that they’re more like resorts or small businesses than homes. The butler has been rebranded as the Household Manager, becoming a kind of Chief Operating Officer for MyHome Inc.

While Jeeves fetched the slippers and served tea, the household manager oversees dozens of “vendors” — from pool cleaners and arborists to the home-theater installer and the dog groomer. The household manager is part accountant, managing multimillion-dollar budgets, and part techie, keeping shopping lists on spreadsheets and networking computers for three vacation homes. The acronym CHM, for Certified Household Manager, can now be found on business cards.

The exploding population of rich people has made demand for good household managers so great that staffing agencies are now talking about a butler shortage. Pay for starting butlers has soared to around $70,000, with some of the more-experienced butlers earning more than $200,000, along with free room and board at the mansion or guest cottage."

Where do you get training to become a butler aka CHM? "Butler Boot Camp," aka Starkey International International Institute in Denver. Watch a video here of butler boot camp.

Exxon Pays Same Taxes As 67 Million Individuals

We hear a lot about "Exxon Mobil's record profits" (108,000 hits on Google), but considerably less attention is paid to "Exxon Mobil's record taxes" (only 97 Google hits), which is approaching $30 billion per year (see chart above). That's a large number, so here are some ways to put $28 billion of taxes in perspective:

1. According to the IRS, there are about 134 million individual income tax returns filed yearly, and the amount of federal income tax collected by the bottom 50% (67,000,000 taxpayers) is about $28 billion per year. Therefore, Exxon Mobil pays about the same amount in taxes as 67 million individual taxpayers!

2. $30 billion is equivalent to the entire GDP of countries like Luxembourg, Guatemala and Qatar.

3. $30 billion is the amount of state tax revenues collected (income taxes, property taxes, sales taxes, excise taxes, licenses and fees, etc.) from these 12 states COMBINED: South Dakota, North Dakota, New Hampshire, Wyoming, Montana, Vermont, Alaska, Rhode Island, Delaware, Idaho, Maine, and Nebraska.

4. $30 billion is enough to fund the COMBINED budgets of the Department of Agriculture ($19 billion), the FDA ($2 billion) and the EPA ($7.6 billion).

Friday, June 01, 2007

No Visits to Carpe Diem Yet from Cuba

The Internet is a tightly controlled privilege in Cuba, reserved for the trusted elite. Private citizens are prohibited from buying computers or accessing the Internet without special authorization. Access in Cuba is limited to citizens who can prove they are engaged in research or connected to an accredited and approved institution.

And only about 2% of Cubans even have telephones, so Internet access, even if they could acquire a computer, would be almost impossible for the average person in Cuba. I guess they won't be visiting Carpe Diem, or any other blog or website, any time soon (see the map above of visits to Carpe Diem)!

Aprovecha el dia!

Monster Online Job Index Increases in May

From Monster's online job availability report for May, "The Monster Employment Index rose three points in May (see chart above), suggesting U.S. online recruitment activity and related demand for workers has stabilized at the end of the busy spring hiring season. Overall, 13 of 20 industries and seven of 23 occupational categories tracked by the Index registered increases of varying degrees last month. Year-over-year, the Index’s annual growth rate dipped slightly to 13%, but showed a moderate improvement over the slower pace recorded in the first quarter of
this year.

The Monster Employment Index is based on a real-time review of millions of employer job opportunities culled from more than 1,500 different Web sites, including Monster®.

Here are the top ten states in terms of per-capita online job availability during the month of May:

"Google Trends" Rocks

In a previous post, I quoted Business Week, "Run a Google geographical-hit query, and you'll see that, per capita, nowhere in the world are there more searches for the words "Peter Drucker," the late management guru, than in Bogotá. No. 2? Medellín."

After reading the Business Week article, I tried to figure out how it ran the "geographical-hit query" on Google, and couldn't find the right website. Searching for "geographical-hit query" didn't help.

To the rescue comes Tim Worstall, who had a recent post on Spanx Undergarments, and revealed the mystery: "Google Trends," which reports the highest concentration of Google searches on a particular word or phrase by city, country and language, and tracks search traffic over time. Here are some interesting search results using Google Trends.

Top 5 Countries for Monica Lewinsky Google searches:
1. Pakistan
2. U.S.
3. India
4. UAE
5. Canada

Top 5 Countries for Milton Friedman Google searches (see trend chart above):
1. Ecuador
2. Bolivia
3. Colombia
4. Hong Kong
5. Mexico

Top 5 Countries for Aretha Franklin searches:
1. Croatia
2. Belgium
3. Chile
4. Italy
5. Norway

Top 5 Countries for "affirmative action" searches:
1. Namibia
2. South Africa
3. U.S.
4. Kenya
5. Australia

If you find other interesting results, let me know and I'll post them.

Quote of the Day: Global Warming

I have no doubt that a trend of global warming exists. I am not sure that it is fair to say that it is a problem we must wrestle with. To assume that it is a problem is to assume that the state of earth's climate today is the optimal climate, the best climate that we could have or ever have had, and that we need to take steps to make sure that it doesn't change.

First of all, I don't think it's within the power of human beings to assure that the climate does not change, as millions of years of history have shown. And second of all, I guess I would ask which human beings, where and when, are to be accorded the privilege of deciding that this particular climate that we have right here today, right now, is the best climate for all other human beings. I think that's a rather arrogant position for people to take.

~NASA Administrator Michael Griffin